Edgerron Company is able to produce two products, G and B, with the same machine

Question

Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available. Product B Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month Product G $ 150 60 $ 90 180 $ 72 0.4 hours 1.0 hours 550 units 200 units The company presently operates the machine for a single eight-hour shift for 22 working days each month. Management is thinking about operating the machine for two shifts, which will increase its productivity by another eight hours per day for 22 days per month. This change would require $9,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating losses, if any, as negative values.)

Explanation / Answer

1 product G product B Contribution margin per unit 90 72 machine hours per unit 0.4 1 contribution margin per machine hour 225 72 product G product B total Maximum number of units to be sold 550 200 hours required to produce maximum units 220 200 420 2) product G product B total hours dedicated to the production of each product 176 176 units produced for most profitable sales mix 440 contribution margin per unit 90 total contribution margin - one shift 39600 39,600 3) product G product B total hours dedicated to the production of each product 220 132 352 units produced for most profitable sales mix 550 132 contribution margin per unit 90 72 total contribution margin-two shifts 49500 9504 59004 contribution margin -one shifts 39,600 change in contribution margin 19,404 change in fixed costs 9,000 change in operating income (loss) 10,404 should the company pursue marketing campaign yes 4) product G product B total hours dedicated to the production of each product 240 112 352 units produced for most profitable sales mix 600 112 contribution margin per unit 90 72 total contribution margin-two shifts & marketing campaogn 54000 8064 62064 contribution margin -two shifts without marketing ca 59,004 change in contribution margin 3,060 Additional marketing costs 8,000 change in fixed costs 9,000 change in operating income (loss) -13,940 should the company pursue marketing campaign No

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